After a week of small movements in both directions by all the leading indices, investors will be grateful for another boring week, because that will mean that one of the strongest quarters in recent years will come to an end with returns of 7% for the Dow Jones, 11% for the S&P 500, 12% for the Russell 2000, and 18% for the Nasdaq. The strong end to the first quarter is thanks to good macro data in the US, but next month, the start of the second quarter, the micro picture will come back into focus, with the beginning of the first quarter results season. Expectations have risen considerably in the light of the returns just mentioned.
Among the Israeli stocks I hold in the portfolio tracked here, it has been an especially strong quarter for two of them. EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) and ClickSoftware Technologies Ltd. (Nasdaq: CKSW) have soared way beyond Nasdaq, rising 57% and 35% respectively. While I can explain ClickSoftware's rise, that of EZchip, which is at the astonishing market cap of $1.2 billion, is difficult to explain, and I am not at all sure that the riddle will be solved by the results when they are released in early May.
For ClickSoftware, which provides solutions for optimal management of service teams in telephony, cable, power, water and gas companies, the first quarter looks as though it will close on good business momentum, following on from the strong close to 2011, among other things thanks to the successful collaboration with SAP signed two years ago. That could be understood between the lines of the remarks by CFO Shmuel Arvatz at the investors conference held by Roth Capital in the US two weeks ago.
Arvatz said at the conference that ClickSoftware was gradually getting into mobile solutions in completely new market segments unconnected to service teams, and that this would expand the company's target market. With the kind of software solutions they have, the smartphone and tablet revolution facilitates efficient manpower management, and, among other things, Arvatz mentioned the healthcare sector. ClickSoftware has also recruited a manager from Amdocs Ltd. (NYSE: DOX) to head up cloud computing, which is gathering momentum because smaller enterprises prefer solutions on a monthly lease basis to expensive installation of platforms at the enterprise itself.
Something else that considerably helped the share price during the quarter was the report by the Fidelity funds, among the world's largest, that they had raised their holding in ClickSoftware in February to 3.1 million shares, which represents more than 10% of the company. This move helped to interest other institutions in the stock, which reached a new all-time intraday peak last week of over $13, giving a market cap of $400 million.
As I said, unlike the case of ClickSoftware, the rise in EZchip's share price remains an enigma, because neither the first quarter nor the second are likely to be dramatically different from the sales levels of $14 million and $16 million respectively that the market expects, and we are talking, to remind ourselves once more, of a company with a $1.2 billion market cap. Even the crushing of the short players who gambled against the company shares at the beginning of the year by selling 2.3 million that they didn't have doesn't explain a leap of nearly 60% since then.
Since I don't believe in the scenario of a sale of EZchip, I'm betting that the rise is connected to the secret of the "Kiryat Gat project" that the company has managed to keep better than Israel has managed to keep the secret of the "Dimona project." At the Roth Capital conference, EZchip founder and CEO Eli Fruchter said of this project, that I estimate takes up a third of the company's R&D budget, that it is "the development of a very complex processor, with high gross profitability, and that will double the company's target market." These are strong enough statements from a manger considered very trustworthy for investors to pile into the stock.
EZchip's southern project won't yield sales before 2015, but till then sales are expected to accelerate strongly, from the second half of this year, thanks to the Cisco (CSCO) platforms powered by EZchip's fourth generation processors, and also thanks to customers that are growing strongly in the global communications market, such as China's ZTE and Huawei. Another important customer is Ericsson, which is considered a leader in equipment for LTE networks, a market that is only beginning to get going. LTE is meant to deal with huge video traffic, among other things with the aid of advanced processors from EZchip.
Published by Globes [online], Israel business news - www.globes-online.com - on March 26, 2012
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